Health costs, salaries, drive rising budget tide on Martha’s Vineyard

Across Martha’s Vineyard, selectmen, finance and advisory committee members, and town administrators express a familiar lament: They say rising employee costs, especially health care and retirement benefits, far outpace their town’s revenue, even in good economic times. At annual town meetings this week, most voters will see higher operating budgets and override questions that will mean higher taxes.

Faced with contractual obligations to provide health and retirement benefits, and a reluctance to reduce the size of the town work force, town officials turn to services, the shrinking discretionary sector of local government that is often the only place left to cut.

An analysis of spending for the Island’s three largest towns over the past five years shows salaries and benefit costs driving town budgets up year after year. Taxes rise steadily, while towns struggle to provide the same or reduced levels of basic services.

Town administrators urge public employees to do more with less, but taxpayers are left grumbling about paying more and getting less.

“Those high school and pension costs and health care costs keep going up at 5,10,15 percent crunches every year,” Oak Bluffs town administrator Michael Dutton said. “If your policy is you’re not going to have an override, you’re chipping away at services. After 10 years of these kinds of costs and minimal overrides, we’re at a break point.”

Mr. Dutton’s mantra this year is a simple mathematical formula. It has proved a difficult political formula. In meeting after meeting, he has advised Oak Bluffs elected officials they must either reduce services, raise taxes, or perform some combination of both.

Budget busters

In Edgartown, Oak Bluffs, and Tisbury, like many other Massachusetts towns, operating budgets have increased dramatically over the past five years. (See chart) In the current fiscal year, 2011, Edgartown will spend 22.3 percent more in town operating costs than it did five years ago. Health care, and insurance rose 41.1 percent over the same period to $2,482,055. Employee benefit costs now consume 9.3 percent of Edgartown’s entire budget.

Over the five years, town employment has remained steady, between 174 and 178 full-time and part-time employees, according to figures supplied by town officials.

In Oak Bluffs, the budget is up 10.3 percent over the last five fiscal years. Employee benefits cost taxpayers $2,220,790 in the current fiscal year, up 23.3 percent over the five years. Benefit costs now represent 9 percent of the entire budget. From calendar 2005 to 2010, the number of full-time and part-time town employees has fluctuated from 210 to 220.

Tisbury’s operating budget rose 25.5 percent over the past five years. Employee costs for the current year are $2,823,200, or 14 percent of the total budget. Employee costs rose 33.4 percent over the five years.

The number of town employees remained about the same, from 177 to 179.

The trend is the same in all three towns. The number of employees is about the same, while health care costs, and budgets rise dramatically over the same period.

“Absolutely crippling us,” Tisbury selectman Jeff Kristal said.

Benefit analysis

All Island towns provide similar health care plans and pay 75 percent of the premium costs, with the employee paying 25 percent. In recent years, town administrators have moved to require a switch to Medicare coverage for those who are eligible, and eliminated the most costly health plan options.

Public employees are promised lifetime health care benefits, and are guaranteed relatively good pensions.

According to a recent compensation study of Massachusetts workers, the public sector pays four times more to insure the health of its employees. Much of the discrepancy is due to the number of private sector workers who pay a higher percentage of health benefits, and the number who receive no health benefits through their employer, according to state labor statistics.

Cost compact

Several officials in Island towns cited an informal trade-off for public workers. They say public employees accept a lower salary, in return for higher benefits, and a stable job. The public employees’ benefits often include a pension, because public employees in Massachusetts are not eligible for federal social security retirement benefits.

“The argument has always been municipal employees have not been paid as well as their counterparts in the private sector, and the benefits have made up for the salary discrepancy,” Oak Bluffs town administrator Michael Dutton said. “In the last couple of years that distinction may not be as valid.”

In the private sector, employers often cut staff when profits fall. A private company can stop selling a product and lay off the employees who produced it, if the product becomes unprofitable. A town cannot stop policing its streets or educating its children.

“We’re looking at reducing services the town pays for, but not necessarily the services the taxpayer gets,” Mr. Kristal said. “We’re not refilling positions. If we have somebody that is going to retire we’re going to see if we can do it in-house with the current help or we’re going to look at sharing services with regional opportunities.”

Steadily rising town budgets, however, indicate cost-cutting and regionalization have so far amounted to a drop in the bucket.

When revenues fall, towns must balance budgets. To date, employee levels show towns are reluctant to cut staff, except incrementally by attrition.

“There are two reasons,” Thomas Durawa, chairman of the Edgartown financial advisory committee, said. “The first is, the people who work for us are generally our neighbors and friends and relatives. The other one is, they deliver services. In most cases those services are much-needed, if not to the year-round population, then certainly to the summer community.”

He said more people apply for government jobs when the private sector economy sours, an illustration of the different characteristics of public and private sector workers.

“We don’t pay as much,” Mr. Durawa said. “When you’re in the private sector you win and you lose. The public sector is a little different game. They want a steady paycheck and regularity. Part of that regularity is health and retirement benefits.”

Federal labor statistics show public sector employees are four times less likely to voluntarily quit, and about half as likely to be fired than their private sector counterparts. Some economists argue this is a benefit worth as much as 15 percent of their pay, according to an analysis done by the New York Times.

Apples and oranges

Comparing public and private sector compensation is tricky business. At the national, state, and local level, interest groups offer a wide range of comparisons, arguing that their own interpretation of the labor statistics is most valid.

On March 7, The Massachusetts Budget and Policy Center issued a research paper analyzing Massachusetts work force characteristics and wages in the public and private sectors, over the past 15 years. According to its mission, the organization, known as MassBudget, “produces policy research, analysis, and data-driven recommendations focused on improving the lives of low- and middle-income people, strengthening our state’s economy, and enhancing the quality of life in Massachusetts.”

According to MassBudget, state and local public sector employees who do not have a college degree earn significantly more in total wages and benefits, than their private sector counterparts. Those with a high school degree earn $2.24 per hour more, those who attended some college, $6.06 more. The opposite is true for public employees who have a college or graduate degree, according to the study. Public sector college graduates earn $1.21 per hour less, those with education beyond college, $3.34 less.

The study notes that comparisons are tricky, because 60 percent of public employees have at least a college degree, while 44 percent of private sector workers have an equivalent education. Many of those public employees are teachers, a profession where a graduate degree is often a minimum requirement.

The two sectors have many incomparable jobs. There is no private sector counterpart for a firefighter, for example.

“Public sector jobs require higher levels of education than private sector jobs, so even though public sector workers get paid less than private sector workers with the same levels of education, the average salary overall is higher,” the paper’s authors write. “Claims that public sector wages are higher than private sector wages ignore the significant differences in the composition of the public and private sector workforce.”

Taxing times

Each year, the state department of revenue calculates the average tax bill for single families in most of the state’s 351 cities and towns. Some communities do not provide enough information to determine an average single family tax bill because they tax property by different classes. Tisbury is one of those towns. Tisbury taxes the property of year-round residents at a lower rate than it taxes seasonal resident and commercial property.

State tax figures shows the average annual single family tax rate for the other five Island towns is relatively high. All towns except Edgartown rank in the top half of the 330 Massachusetts cities and towns included in the rankings for the current fiscal year. Edgartown is slightly below the 50th percentile. (See chart.)

Single families in Aquinnah have the highest average tax bill on Martha’s Vineyard, in relative terms. The average tax bill in Aquinnah is $4,849, the 95th highest average bill in the state, according to the Department of Revenue rankings.

West Tisbury ranks 98th, with an average single family tax bill of $4,793

Oak Bluffs is next at 146th, with an average tax bill of $4,118.

In Chilmark, the average single family tax bill is $3,938, and it ranks 159th highest in the state.

In Edgartown, the average single family tax bill is $3,751, and it ranks 172.

The Island tax rates reflect the demography of the towns. A large number of wealthy seasonal residents translates to lower tax bills for those who live here all year.

By comparison, the most expensive tax bills are in Weston — $15,835 annually. Right in the middle of the rankings is New Braintree, at $3,880 per year. Rowe has the lowest average single family tax bill — $1,108.